Wall Street Is Gobbling Up Two-Thirds of Your 401(k) • Hacker News Board

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#11

Post by ChuckMcM » Sun, Apr 28, 2013, 11:22 PM UTC

joe_bleau wrote: post #7

ChuckMcM wrote: post #4

Which is why as soon as you get a chance you immediately transfer your 401k into a self managed IRA account, which if you did nothing but put all the money into an S&P 500 index fund you would do better than having these guys pilfer your account over time. Not a big issue for you young folks but it does add up. What is worse is that there is a lot of double dipping that goes on, for example BigBank1 manages the 401k…

How do you transfer from a 401k to an IRA? I work for a very small company, so my 401k investment choices are limited and expensive. I'd love to have a cheap index fund option.

Sadly, you can only roll it over during a 'qualifying event' which is either you leave the company, the company drops the 401k, or reach the minimum age for disbursement. The most common case is people leaving the company.

I've known too many people who change jobs and just leave the 401k they had in their previous job with the company that is still managing the 401k for the old company. There can be (and often are) different rules for former employees that can be (and sometimes are) much more advantageous to the bank. When I left Sun the 401k moved all of the funds into a 'guaranteed interest' fund (aka a bond fund) with a 3% management fee. It was pretty egregious.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#12

Post by greenyoda » Sun, Apr 28, 2013, 11:22 PM UTC

joe_bleau wrote: post #7

ChuckMcM wrote: post #4

Which is why as soon as you get a chance you immediately transfer your 401k into a self managed IRA account, which if you did nothing but put all the money into an S&P 500 index fund you would do better than having these guys pilfer your account over time. Not a big issue for you young folks but it does add up. What is worse is that there is a lot of double dipping that goes on, for example BigBank1 manages the 401k…

How do you transfer from a 401k to an IRA? I work for a very small company, so my 401k investment choices are limited and expensive. I'd love to have a cheap index fund option.

You can roll over a 401(k) into an IRA only after you leave your current employer. The company where you open your IRA account should be able to provide you with the proper forms.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#13

Post by aliston » Sun, Apr 28, 2013, 11:22 PM UTC

rayiner wrote: post #5

Wildly inaccurate. What the article is doing is comparing the 40 year return at 7% to a 40 year return at 7% minus 2% management fees, and noting that your total return in the second case is about half as much as your total return in the second case. Of course all that tells you is that it's stupid to pay 2% management fees if you can get the same return with lower management fees. That's obvious. Whether you can get…

"in the long run, your typical investor is going to get the same return with active management with 2% fees as he does with an index fund at 0.1% fees."

This point is extremely contentious. Particularly in the long run, there is a lot of data to show that actively managed funds do not beat market indexes. With fees, they come out considerably behind.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#14

Post by dragontamer » Sun, Apr 28, 2013, 11:22 PM UTC

myth_drannon wrote: post #3

"The revelation of the two-thirds wealth transfer machinery was delivered by none other than John Bogle, the legendary founder of The Vanguard Group, a low-load mutual fund firm, ..." Of course John Bogle will try to sell his low fee index funds. With new products like ETF's and low index mutual funds very few people pay 2% fee. 0.1% to 1% is more realistic.

Indeed. On the other hand, John Bogle / Vanguard does offer very good products, so it isn't that bad that he is willing to puff out his chest a bit on this issue.

The important bit here is to look at the fees that you are paying with your 401k plan, and make sure they are acceptable.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#15

Post by NoPiece » Sun, Apr 28, 2013, 11:22 PM UTC

rayiner wrote: post #5

Wildly inaccurate. What the article is doing is comparing the 40 year return at 7% to a 40 year return at 7% minus 2% management fees, and noting that your total return in the second case is about half as much as your total return in the second case. Of course all that tells you is that it's stupid to pay 2% management fees if you can get the same return with lower management fees. That's obvious. Whether you can get…

And these days, .1% is even a bit high for an index fund. I think Vanguard recently lowered total stock fund to .05%

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#16

Post by tehwebguy » Sun, Apr 28, 2013, 11:22 PM UTC

  Smith: Take an account with a $100,000 balance and reduce it by 2 percent a year. At the end of 50 years, that 2 percent annual charge would subtract $63,000 from your account, a loss of 63 percent, leaving you with just a little over $36,000.

Is this math right? It doesn't seem like this is how the calculation would be done.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#17

Post by ChuckMcM » Sun, Apr 28, 2013, 11:23 PM UTC

rayiner wrote: post #9

ChuckMcM wrote: post #8

Earlier quoted context omitted.

"Of course all that tells you is that it's stupid to pay 2% management fees if you can get the same return with lower management fees." It is a bit more nuanced than that, basically it's saying you don't have any control over what sort of fee structure your 401k has in place, and goes on to suggest that banks abuse that lack of control. So yes, if you can , you need to reduce your management fees.

Who doesn't have the option to invest in low fee funds? That's really your employers fault.

agree 100%, and that mitigates 'dip 2' as it were, but few rank and file employees get to tell the bank managing the company's 401K which funds to use, they also don't get to negotiate the fees that the managing bank is charging either.

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#18

Post by niggler » Sun, Apr 28, 2013, 11:24 PM UTC

ChuckMcM wrote: post #4

Which is why as soon as you get a chance you immediately transfer your 401k into a self managed IRA account, which if you did nothing but put all the money into an S&P 500 index fund you would do better than having these guys pilfer your account over time. Not a big issue for you young folks but it does add up. What is worse is that there is a lot of double dipping that goes on, for example BigBank1 manages the 401k…

Except for those companies where you must have a 401K in order to collect a company matching contribution, in which case you are net ahead by keeping it in the 401K rather than forgoing the match

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#19

Post by chubot » Sun, Apr 28, 2013, 11:25 PM UTC

rayiner wrote: post #5

Wildly inaccurate. What the article is doing is comparing the 40 year return at 7% to a 40 year return at 7% minus 2% management fees, and noting that your total return in the second case is about half as much as your total return in the second case. Of course all that tells you is that it's stupid to pay 2% management fees if you can get the same return with lower management fees. That's obvious. Whether you can get…

Now, in the long run, your typical investor is going to get the same return with active management with 2% fees as he does with an index fund at 0.1% fees.

How? Are you claiming that active management actually works?

You might be able to beat an index fund with active management, but you also might lose big. It's an illusion. Without foresight, you're just as likely to have chosen Warren Buffet as Bernie Madoff to manage your money :)

Re: Wall Street Is Gobbling Up Two-Thirds of Your 401(k)

#20

Post by dragontamer » Sun, Apr 28, 2013, 11:27 PM UTC

conjecTech wrote: post #6

This is fundamentally wrong. The statement assumes the whole of the management fees is being reinvested at 7%, when in reality it is being used by those who have jobs in the financial sector to pay their bills. That is quite literally like taking the price you pay for anything and multiplying it by (1.07)*50 (which is ~30) and claiming that is what they are actually charging you, since you could have otherwise invest…

So... why not buy a Vanguard index fund, which is currently charging 0.07% for a management fee?

The difference between a 2% management fee and a 0.05% management fee from Vanguard's Total Stock Market Index... or 0.09% fee from SPY ETFs (+$7/trade from your typical broker).

Run the math, if you are paying 2% fees, you are getting straight up robbed. If your employer doesn't offer low-fee index funds, it would be worth your while to make sure that they get some onto your 401k portfolio.